Chapter 63, Problem 7MCQ

To determine

A perfectly price-discriminating monopolist results into.

Answer to Problem 7MCQ

(d) Achieve allocative efficiency.

Explanation of Solution

Allocative efficiency can be achieved in a perfectly price-discriminating monopolist because all potential customers who are willing to buy the good at a price equal to or above marginal cost are able to do so and eliminate inefficiency. Hence, option (d) is correct.

Perfect price discrimination extracts all consumer surplus since it charges a price equal to a maximum willingness to pay. Hence, option (a) is incorrect.

Since, a perfectly price-discriminating monopolist extracts all consumer surplus to earn a supernormal profit, hence option (b) is incorrect.

Since there is allocative efficiency in a perfectly price-discriminating monopolist so there will not be a deadweight loss. Hence, option (c) is incorrect.

In a single price monopoly, a firm charges a higher uniform price irrespective of willingness to pay, and in a perfectly price-discriminating monopoly, different price is charged with respect to willingness to pay from the different groups so more output allocation takes place in the perfect price-discriminating monopoly. Hence, option (e) is incorrect.

Economics Concept Introduction

When a monopolist charges a different price to different groups of consumers to their maximum willingness to pay then it is called perfect price discrimination. In perfect price discrimination, monopolists extract all consumer surplus. Perfect price discrimination does not cause any allocative inefficiency.